At present the global economy is shifting towards a free market economy. But in order to appreciate the significance of this change it is important to understand the evolution from a centrally controlled economy to a free market economy.
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In modern times, the common feature of many Western governments is a mixed economy. In this structure the government does not control a major part of the resources. However, the government reserves the right to control critical sectors of the economy. The rationale for this design is based on efficiency. Nevertheless, there is a pronounced shift to a free market economy as the world discovers the problems inherent in a mixed economy.
Examples of a mixed economy can be found in many parts of the world and the list includes most countries in Western Europe, in the American continent as well as major countries in Asia. Those who advocated the use of a mixed economy made the argument that it will result in “low unemployment, low poverty, steady economic growth, and an equitable distribution of wealth by means of the most effective policies” (Wild 35).
However, there are inherent flaws to this economic structure. One of the problems associated with this feature is extensive government ownership of resources. As a result there is little incentive for efficiency and accountability. The proposed solution is to transform a mixed economy into something that resembles a free market economy. The process requires a transition and one of which, is a move towards privatization.
Privatization is the process of selling government-owned resources (Wild 35). The intended consequence of this action is to free the government from the demands of managing the day-to-day operations of government owned companies and other related agencies. At the same time it eliminates the practice of appointing managers for the sake of political considerations rather than his or her ability to properly manage a firm.
A free market economy must be founded on the principle of Laissez-Faire economics, meaning the capacity to allow industries to operate with little interference from the government. The end result will create free choice, free enterprise, and price flexibility. There are requirements that must be fulfilled in order to achieve these three things. First, there must be anti-trust laws to promote fair competition. Secondly, the government must respect property rights. Thirdly, there must be a stable fiscal and monetary environment. Fourthly, there must be political stability. Finally, there must be economic freedom.
In the beginning of the modern period, most of the governments in the Western hemisphere subscribed to the idea of a mixed economy. But in recent times, many government leaders and business leaders argue the inefficiency of a mixed economy. The better alternative is a free market economy.
But in order for a free market economy to prosper a process of transition must first occur. The first stage requires privatization of economic resources and the transfer of the same to private entities. There is also the need to build on the idea that there must be minimal interference from the government.
Furthermore, the government must aspire to achieve free choice, free enterprise and price flexibility. These three main goals can only be achieved if the government establish anti-trust laws and respect property rights. In addition the government must labor to provide a stable fiscal and monetary environment as well as political stability and economic freedom.
Wild, John. International Business: The Challenge of Globalization. New Jersey: Prentice Hall, 2010. Print.